IRS Releases Guidance on Energy Efficiency Tax Credits

March 1, 2006

The U.S. Internal Revenue Service (IRS) issued guidance on February 21st on
the tax credits for new energy efficient homes and for energy
efficiency improvements to existing homes, as established by the
Energy Policy Act of 2005. A credit of up to $2,000 is available for
eligible contractors who build a qualified new energy efficient home
and sell it either this year or next. The credit is available for all
new homes, including manufactured homes constructed in accordance with
the Federal Manufactured Homes Construction and Safety Standards. See
the IRS press release
and the guidance for traditional homes (PDF 25 KB)
and manufactured homes (PDF 36 KB).
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For existing homes, the law provides a 10 percent credit for buying
qualified energy efficiency improvements, including insulation,
reflective metal roofs, insulated exterior doors, and energy efficient
exterior windows and skylights. The law also provides residential tax
credits of $50 for each advanced main air circulation fan and $150 for
qualified furnaces or hot water heaters fueled with natural gas,
propane, or oil. That credit increases to $300 for qualified heat pump
water heaters; high-efficiency water heaters, boilers, furnaces, and
central air conditioners; and geothermal heat pumps. To earn the
credit, the improvements must be made this year or next year. The
maximum credit for both years is $500, of which expenses for windows
can provide no more than $200. Manufacturers of these products may
certify them as eligible for the tax credits, in which case the
homeowner can rely on the certification to claim the credit. See the
IRS press release
and the full IRS guidance (PDF 37 KB).
Download Adobe Reader.

To help homeowners take advantage of the energy efficiency tax
credits, the Alliance to Save Energy (ASE) has created a special tax
credits Web site. ASE has also issued state-by-state energy saving
tips for 37 states and the District of Columbia, and has published a
free consumer booklet of energy saving tips called "Power$mart: The
Power Is In Your Hands." See the ASE Energy Efficiency Tax Credits Web site,
the ASE press release
and Web site
for the state-by-state energy
tips, and the ASE press release
and Web site for the Power$mart booklet.